Momentum is have its worst day on record – by far. Dispersion between stocks is the highest on record – by far. These relative moves in stocks/sectors are painful for many funds, a sharp reversal from last Wednesday, and compounded by the high grosses HFs have been running per the MS PB Content team. But a bull market rotation is not the same as a bear market rotation. Any pain is offset by a) the market rally (MS PB Content also notes that nets are high) and b) the P/L cushion coming into this event (the average fund has outperformed the market YTD) and a violent unwind on the long side of people’s books is unlikely in QDS’ view. Tech stocks can lag, but they are unlikely to sell off hard and take the overall market lower with them. Macro flows should be supportive as retail has pulled nearly $200bn from equities this year and will likely add on the back of the election and vaccine developments, and systematic strategies will likely turn buyers once realized vol normalizes.
MS QDS
Massive consumer boom….
"We remain firmly of the view that the post-vaccine economy will be characterized by a massive consumer boom. It will be financed by a combination of stimulus payments and savings generated by months—it will be a year, at least by the time herd immunity is reached—of enforced cutbacks in spending on discretionary services. The scale of households' cash build since the pandemic began is mind-boggling, with savings account balances at commercial banks and thrifts rising by a total of almost $2T in just eight months"
Pantheon
Tech and yields have a special "connection" as tech is the sensitive "duration" trade. The crowd has been taught to buy tech on any dips. Maybe that will work again, but whatever you do in tech space, be sure yields are on your "side".
QQQ vs US 10 year inverted.
Refinitiv
European banks, hated by majority, put in one of the biggest moves higher ever yesterday, and we are seeing the move continue today, although less violently.
It was only a few weeks ago so many were sending us the "European banks about to break out charts". If the vaccine will save EU banks is to be seen.
On Oct 23 we wrote about the EU banks outlining a few important points;
"Despite all the bearish arguments to be made, some early possible green shoots have been emerging lately…earnings have started to lead when it comes to EU banks…Do recall the M&A set up via GS we outlined earlier today"
We concluded our logic with;
"Things can move quickly when it comes to "forgotten" sectors. We like convexity plays for a possible further squeeze in the SX7E."
The move higher has been brutal and more violent than we imagined, but EU banks remain stuck in a range, and as we approach the upper part of the range, the prudent investor should not get too greedy. Chasing longs here looks like a very late trade.
Refinitiv
Small investor favorite stock picks continues to outperform. This is very good ingridient to suck more money into the markets and create the year-end melt-up.
Bloomberg
Does NASDAQ need retail army to go all in before we can catch some real bids?
Volatile range for NASDAQ seems the base case scenario for now, but be careful, that burns a lot of premium…
Barclays
Upside used to be the main pain trade, but this has now shifted to a rotation frustration. We are seeing the NASDAQ vs Russell ratio move lower again, as Russell trade up 2% and NASDAQ is down approx. the same amount.
Until now you just had to "guess" direction and pace, now you need to add one more dimension to it…
Refinitiv
Macro hedge fund guru at Goldman, Tony P positions ponders:
"Alongside the younger cohort of retail investors, I’d argue the core equity community holds a reasonably high degree of length (this is borne out clearly in Prime Brokerage data); on a scale of -5 to +5, let’s mark that camp at +4. the systematic trading crowd is more middle of the road — call it +3 — and, should be buyers of higher prices over the next week and the next month. so, when I throw those pieces in the blender, it feels like the trading community is approaching +4 … while the other active market participants we address feel lighter on the risk dial. therefore, I suspect the arbiter of the next 200 handles higher in S&P would need to come from elsewhere … retail, foreign, sovereign. the real money community was conspicuously quiet last week … I suspect that won’t last for too long"
VIX term structure is violently lower across the entire structure, but especially in the short end of the curve. As we pointed out, the 2/8 months VIX futs spread was in less panic than the actual VIX index, so despite all the comments of the VIX post elections puke, under the hood showed relatively little stress.
Second chart shows the implosion per maturity.
Our logic on volatility here remains intact. Replacing longs with relatively short dated upside calls makes sense.
Median MSCI AC world rose 5% 1988-2016. SPX is up some 7% post this election.
Px action yesterday was very "erratic", and the candles left huge shadows. We remain true to our logic, this market is stuck for some longer….
GS: "Global economic recovery to broaden and deepen next year. Cyclical assets do not fully reflect our forecast of sustained expansion"
Chart: Cyclical assets poised for stronger performance
Goldman
KWEB has given back the entire "break out" move. 100 day moving average is still "comfortably" lower. BABA, the biggest component, continues crashing and has not closed here since early September (currently breaking below the 100 day).
Funny how lately everybody loves the EM story, but do not want to realize EM these days is practically about tech…
Watch Chinese and Asian tech closely here as this space was leading on the way up.
Refinitiv
Do you consider NIO a part of the recent Chinese tech upside panic or is it a story of its own? You could make the bullish and the bearish argument fundamentally when it comes to NIO, but the psychology of masses is always the same. NIO is putting in the biggest negative candle today in pretty much forever. This is not a small cap any more, market cap $58bn, and has managed attracted many eager punters over the past few months.
Most parabolic charts end in tears. One of the latest "casualties" is ZM, down today again.
The psychology of speculation tends to follow the same patyh, always has and always will. The chart shows ZM and NIO. They have nothing to do with each other as businesses, but the psychology of the parabolic move is there.
Do we even need a catalyst?
Refinitiv
Another attempt at a step in the right direction for the relative trade financials vs S&P500 vs 10 yr breakevens.
Refinitiv
The GS model shows probability of a 10% S&P 500 drawdown in the next 12m based on current valuations and CAI levels. Should we "laugh this off" as a model that no one looks at – or is this actually somewhat synonymous with the ever growing post-COVID complacency out there?
Goldman
WSJ reports that "The European Union is planning formal antitrust charges against Amazon. com Inc. over its treatment of third-party sellers". If Amazon is found guilty, it could be fined as much as 10% of its annual revenue.
The question is how strong is EU's case. Alec Stapp brings out an interesting point that Amazon is not even close to the list of % its revenue comings its own private labels. Will this potentially be another dud of a regulator going after a big tech company?
% of Revenue from Private Label Goods (Store Brand)
Aldi: 90%
Trader Joe's: 85%
Save-A-Lot: 60%
Dollar Tree: 30%
Kroger: 29%
Costco: 25%
Walgreens: 25%
CVS: 25%
Target: 24%
Walmart: 19%
Amazon: 1%
Credit Suisse
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